System And Method For The Efficient Clearing Of Spectrum Encumbrances

ABSTRACT

The present invention is a system and method to sell or procure complementary goods. complementary good according to the invention is a good whose value or utility is enhanced when paired with another good, such a pair of goods is a communication license to encumbered spectrum and a complementary clearing right to clear the spectrum of its encumbrance. The invention provides automated procedures to facilitate the fashioning and sale of clearing rights so as to enhance the value of the communications license.

RELATED APPLICATION

This application is a continuation of co-pending application Ser. No.13/429,844 filed Mar. 26, 2012, which is a continuation of co-pendingapplication Ser. No. 09/740,930 filed Dec. 21, 2000, now U.S. Pat. No.8,145,555 which claims the benefit of Provisional Application Ser. No.60/171,303 filed Dec. 21, 1999, both of which are incorporated herein bythis reference.

FIELD OF THE INVENTION

The present invention relates to improving market mechanisms for thesale or transfer of complementary goods and, more particularly, to theimplementation of market mechanisms yielding the efficient clearing ofspectrum encumbrances.

BACKGROUND OF THE INVENTION

It is commonplace for goods, tangible or intangible, to be sold orprocured by auction or market mechanism. When goods are sold usingmethods in the art, they are generally either sold one at a time or withlike goods sold together. For example, in auctions at traditionalauction houses such as Sotheby's or Christies—or in Internet auctionssuch as eBay-goods are generally sold one at a time in ascending-bidauctions. In auctions such as the U.S. Treasury bond auctions, multipleidentical objects (bonds with identical interest payments and maturitydates) are auctioned together in sealed-bid auctions. In auctions suchas the Federal Communications Commission's spectrum auctions,telecommunications licenses covering nearby frequencies and coveringvarious regions of the U.S. are auctioned together in ascending-bidauctions. Similarly, when goods are procured using methods in the art,they are generally either procured one at a time or with like goodsprocured together.

However, standard auction or other market procedures for selling orprocuring goods may encounter severe difficulties when there arecomplementary goods located outside of the auction or market mechanism.Good A and good B are said to be complements when they are most usefullyconsumed or produced together.

A severe example of complements, which motivates much of the followingdiscussion, is created when a government sells licenses for encumberedtelecommunications spectrum. For example, at this writing, the FederalCommunications Commission (FCC) is planning to sell new communicationslicenses in the 700 MHz band in FCC Auction No. 31, currently scheduledfor March 2001. Because of its location in the electromagnetic spectrumand its excellent propagation characteristics, the 700 MHz band isideally suited for next generation (3G) mobile or high-speed broadbandtelecommunications services. Once deployed, these services willintensify competition for all communication services and yieldtremendous benefit to the public. However, the 700 MHz band is the samespectrum currently allocated to UHF television channels 59-69, and some100 television stations nationally currently operate in this band.Moreover, the current UHF television stations maintain the right tocontinue to broadcast on this frequency without interference until theend of the digital television (DTV) transition, currently scheduled toextend six or more years beyond the auction date for the new licenses.

This presents a fundamental economic problem. A buyer wishing to providea new wireless service in the 700 MHz band needs two things: a newlicense from the FCC; and agreement from incumbent broadcasters in thisband to clear the spectrum. The license and the clearing agreements arestrong complements; each is of limited usefulness without the other. Onecan think of the license as a left shoe and the clearing agreements as aright shoe. What a buyer needs is a pair of shoes. The problem is thatthe government is only auctioning (and, indeed, only owns) left shoes;the right shoes are owned by many different broadcasters. An auction forleft shoes by themselves is likely to attract little interest unless thewinning bidders can be confident that they will also be able to acquirethe corresponding right shoes.

Thus, if the new FCC licenses for the 700 MHz band are sold—as currentlyplanned—in an auction that does not include agreements to clear, severedifficulties can be expected. Bidders in the FCC auction can anticipatethat the obtaining of clearing agreements after the auction will beexceedingly costly, as the incumbent broadcasters will be in excellentbargaining positions to extract very high prices from the winners of thenew FCC licenses. Moreover, failures in the bargaining process willlikely result in many of the encumbrance issues not being resolved formany years, leading to vast underutilization of the spectrum.Understanding this, bidders in the FCC auction are likely to bid verylow prices, so the federal government (and taxpayers) will likelyreceive vastly diminished auction revenues.

SUMMARY OF THE INVENTION

The present invention is a system and method to sell or procurecomplementary goods. In one especially useful embodiment of the presentinvention, contracts with incumbent broadcasters to clear the spectrumare aggregated and/or partitioned to create “clearing rights” associatedwith communications licenses that are being auctioned. In thisembodiment, the present invention is a system and method to offerclearing rights that are complementary goods with respect to thecommunications licenses, facilitating the efficient clearing of spectrumencumbrances. It may enable the bidders in a spectrum auction to bid forclearing rights at the same time that they bid for the basiccommunications licenses. It may further enable them to make their bidson the clearing rights conditional on winning the basic licenses. Thisgives the bidders the confidence to bid according to their true economicvalues for the spectrum. It also minimizes the possibility thatpost-auction bargaining failures will lead to the inefficient clearingof the spectrum. Thus, the present invention provides the advantage ofimproving the economic efficiency of the auction or market mechanismover the prior art.

In one preferred embodiment, the present invention comprises a linkedauction, described generally as follows. A private company conducts asecondary auction (“clearing auction”) for clearing rights at the sametime that the FCC conducts the regular FCC auction (“primary auction”)for the basic licenses. The bidders in the clearing auction are the sameparties (“participating bidders”) who bid in the FCC auction.Participation in the clearing auction is purely voluntary, but theprocess is structured so that all of the likely winners in the FCCauction will have an incentive to participate.

Every time that a participating bidder places a bid on a basic licensein the primary auction, it automatically places a linked bid on theassociated clearing rights in the clearing auction, where the amount ofthe linked bid is given by a predetermined mathematical formula(“linkage formula”). A participating bidder who wins one or more basiclicenses in the primary auction also wins the associated clearing rightsin the clearing auction, and is required to make a payment based uponits bids in the primary auction and upon the linkage formula. Aparticipating bidder who does not win any basic licenses will typicallynot win any clearing rights, and the linkage formula will typically notrequire the losing bidder to make any payment.

One exemplary linkage formula is a simple one-to-one relationship. Forevery dollar of a winning bid in the primary auction, a participatingbidder is obligated to pay an equal sum for the clearing rights. Oneexemplary division of the revenues from the clearing auction is todivide the revenues proportionately among the incumbent UHF televisionstations. Every dollar paid for clearing rights in a given region isallocated among the individual stations in a region in proportion to thepopulation or number of households within their respective grade Bcontours.

In a second preferred embodiment, the present invention comprises anunlinked auction, described generally as follows. Again, a privatecompany conducts a clearing auction at the same time that the FCCconducts the primary auction. Participating bidders are permitted toconcurrently place bids on clearing rights in the clearing auction. Bidsare not rigidly linked to bids in the primary auction, but bids for theclearing rights are nevertheless constrained to satisfy somemathematical relationship relative to bids for the basic communicationslicenses. One exemplary constraint for the unlinked auction is a simplegreater-than-or-equal-to-one relationship. For every bid in the primaryauction, a participating bidder is obligated to bid at least an equalsum for the clearing rights. Winners of the primary auction win thebasic licenses, and winners of the clearing auction win the clearingrights. Optionally, the obligation of a winning bidder of the clearingauction to purchase the clearing rights may be made conditional onwhether the bidder has won the associated basic license in the primaryauction.

In the above descriptions of the linked and unlinked auction, theclearing auction was described as occurring at the same time as theprimary auction. The above descriptions could be modified by replacing“at the same time as” with “before” or “after”, and this would stillconstitute a description of an embodiment of the present invention.However, we believe at this time that the present invention offers thebest performance when “at the same time as” is used.

The “clearing rights,” as used in the above description, are created bytaking contracts with incumbent broadcasters to clear the spectrum, andaggregating and/or partitioning them to form goods that are more nearlycoextensive with the associated communications licenses. In turn, eachcontract underlying the clearing rights could be an unconditional salescontract of the obligation to cease over-the-air broadcasting on thefrequency and at the location in question, or it could be any otherderivative rights as to the ownership of the television station or theuse of the spectrum. For example, it could be an option to demandcessation of over-the-air broadcasting for a predetermined strike price,or for a menu of different strike prices depending on the time ofexercise that is chosen. Alternatively, it could be an unconditionalcontract, option contract, or other agreement to relocate the use ofspectrum to a different frequency or to a different mode of delivery.The contract underlying the clearing rights could also be madeconditional on the television station receiving all required regulatoryapprovals. Finally, it could be a contract for the sale of thetelevision station in its entirety.

Auctions or market mechanisms following the above procedures can beconducted entirely on a computer, entirely manually, or with someaspects conducted on a computer and other aspects conducted manually.Computerized conduct of the auction allows the auction to be conductedswiftly and reliably, even if bidders are not located on-site.Computerized conduct of the auction also allows the auction to beconducted with all bidding information taken into account, whilecontrolling the degree to which the information itself is disclosed tothe participants. The amount of information that is transmitted to thebid entry terminals and/or actually displayed to the bidders—and thetime at which it becomes available—may be carefully controlled. In oneembodiment, all bidding information is displayed to the bidders. Inanother embodiment, only the provisionally-winning bids, without bidderidentities, are displayed. A number of intermediate embodiments are alsopossible, in which some but not all bidding information is displayed tothe bidders. Finally, computerized conduct of the auction facilitatesthe utilization of combinatorial bidding or other auction algorithmsthat may be computationally quite intensive.

There may be advantages in implementing some aspects of the presentinvention on a computer and implementing other aspects of the inventionmanually. For example, in one preferred embodiment of the “linkedauction” described herein, the linkage between the primary auctionrevenues and the clearing payments is manually-implemented, while thebidding in the primary auction is computer-implemented.

An auction or market mechanism following these procedures can beconducted by a single entity, or the procedures can instead bedecentralized among two or more separate entities. For example, in oneof the preferred embodiments, a government agency (such as the FCC)conducts the primary auction of the basic licenses and a private company(such as Spectrum Exchange Group, LLC) conducts the linked auction. Inanother embodiment, the government agency conducts both the primaryauction and the linked auction. In another embodiment, the governmentagency delegates the primary auction to a private company, which alsoconducts the linked auction.

The present invention is useful for conducting auctions involvingobjects offered for sale by the bidders, as well as objects offered forsale to the bidders. The auction procedures may utilize prices thatascend and/or descend, as well as sealed-bid auctions. The term “bid”includes both offers to sell and offers to buy. Moreover, any referencesto “quantities being offered” include both “quantities being sold” bythe auctioneer, in the case this is an auction for selling objects, aswell as “quantities being bought or procured” by the auctioneer, in thecase this is an auction for buying objects or procuring objects.

Throughout this document, the terms “objects”, “licenses”, “items”,“units” and “goods” are used essentially interchangeably. The inventivesystem may be used both for tangible objects, such as real or personalproperty, and intangible objects, such as telecommunications licenses orelectric power. The inventive system may be used in auctions where theauctioneer is a seller, buyer or broker, the bidders are buyers, sellersor brokers, and for auction-like activities which cannot be interpretedas selling or buying. The inventive system may be used for itemsincluding, but not restricted to, the following: public-sector bonds,bills, notes, stocks, and other securities or derivatives;private-sector bonds, bills, notes, stocks, and other securities orderivatives; communication licenses and spectrum rights; clearing,relocation or other rights concerning encumbrances of spectrum licenses;electric power and other commodity items; rights for terminal, entry,exit or transmission capacities or other rights in gas pipeline systems;airport landing rights; emission allowances and pollution permits; andother goods, services, objects, items or other property, tangible orintangible. It may be used in initial public offerings, secondaryofferings, and in secondary or resale markets.

The communication system used, if any, can be any system capable ofproviding the necessary communication and includes for example a localor wide area network such as for example ethernet, token ring, oralternatively a telephone system, either private or public, theInternet, or the World Wide Web.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is an exemplary block diagram of an auction system in accordancewith the invention;

FIG. 2 is a detail of one element of the system of FIG. 1;

FIG. 3 is a flow diagram of an auction process in accordance with oneembodiment of the invention;

FIG. 4 is a flow diagram illustrating, in greater detail, an element ofthe diagram of FIG. 3;

FIG. 5 is a flow diagram of another embodiment of the invention thatincludes the process of FIG. 3;

FIG. 6 is a flow diagram of another embodiment of the invention thatalso includes the process of FIG. 3;

FIG. 7 is a flow diagram of an auction process in accordance withanother embodiment of the invention;

FIG. 8 is a flow diagram illustrating, in greater detail, an element ofthe diagram of FIG. 7;

FIG. 9 is a flow diagram of an auction process in accordance withanother embodiment of the invention; and

FIG. 10 is a flow diagram illustrating, in greater detail, an element ofthe diagram of FIG. 9.

DETAILED DESCRIPTION OF PREFERRED EMBODIMENTS

The drawings of FIGS. 1-4 of U.S. Pat. No. 6,026,383 and of FIGS. 1-12of U.S. Pat. No. 5,905,975, and the associated texts, provide a generalsuperstructure for the present method and system, especially as itrelates to the computer implementation thereof. Moreover, theterminology established in the previous patents will be relied upon asneeded.

Before describing how the market mechanism process is implemented,reference is made to FIG. 1 to describe an exemplary block diagram ofone embodiment of a system in accordance with the present invention. Asillustrated in FIG. 1, the system includes an auctioneer's system 10(sometimes also referred to as a Bidding Information Processor or BIP)and a plurality of user systems 20 a, 20 b and so on (sometimes alsoreferred to as Bid Entry Terminal or BET), each user system 20 a, etc.represents an individual bidder. The systems 10-20 n are communicativelyinterconnected via a communication system represented by the illustratedconnections. The communication system can represent any system capableof providing the necessary communication to/from BIP and BET andincludes for example a local or wide area network such as for exampleethernet, token ring, or alternatively a telephone system, eitherprivate or public, the Internet or the World Wide Web. Each of thesystems 10-20 n includes a typical user interface 15, 25 a forinput/output and can include a conventional keyboard, display, and otherconventional 1/0 devices. Within each of the systems, the user interface(15, 25 a, etc.) is coupled to a communication interface (14, 24 a,etc.) which is in turn connected to the communication system. Both theuser interface and communication interface are also connected, at eachsystem, to a CPU (12, 22 a, etc.). Each system includes a memory (16, 26a, etc.) which can further be broken down into a program partition (17,27 a, etc.), a data partition (18, 28 a, etc.) and an operating systempartition (19, 29 a, etc.). In each system the CPU (12, 22 a, etc.)represents a source of intelligence when executing instructions from thememory (16, 26 a, etc.) so that appropriate input/output operations viathe user interface and the communications interface take place as isconventional in the art. The particular steps used in implementing theinventive system and method are described in more detail below. In oneembodiment, each of the systems are personal computers, workstations orservers.

FIG. 2 is a more detailed illustration of an exemplary BIP 10 showingdetails of the data partition 18. As seen in FIG. 2 the data partitionincludes provision for creating, storing, processing and outputtingvalues representing Current Lot Number 18-1, Current Round Number 18-2,Current Price 18-3, List of Bidder Numbers 18-4, Bidding History 18-5,Constraints on Bids 18-6, Passwords, 18-7 and Current Objects Available18-8. The particular set of data required for implementing anyparticular market mechanism and the format of that datum or data (suchas scalar, vector, list, etc.) is more particularly specified by thedetailed description of that market mechanism.

In the following description, the complementary goods of interest willbe identified throughout as “licenses” and “clearing rights” (followingthe motivation of the problem of spectrum encumbrances), but they couldjust as readily be generic “objects”, “items”, “units” or “goods”, andthe language used will not in any way limit the applicability of thesystem and method outside the area of communications licenses.

Embodiments of a “Linked Auction” Process

Several of the preferred embodiments of the inventive system and methodtake the form of a “linked auction.” Every time that a bidderparticipating in the clearing auction places a bid on a license or a setof licenses, the bidder effectively also places a linked bid on theassociated clearing rights. The clearing rights are only won—and so thelinked bid is only paid—in the event that the participating bidder winsone or more licenses. Therefore, it is only necessary to actuallycompute the linked bids at the time that the auction for licenses ends,and only for the winners of licenses. Nevertheless, the participatingbidder would generally want to keep track of its linked bids, as justlike bids on the licenses, these become the contractual obligations ofthe bidder upon winning. The amount of the linked bid is given by apredetermined mathematical formula, henceforth referred to as thelinkage formula.

One exemplary linkage formula is given by a simple linkage ratio. If theamount of the linked bid is characterized by a linkage ratio, R, thismeans that every bid of b for a license is effectively linked to a bidof Rb for the associated clearing rights. For example, if the linkageratio R=1, then every bid for a license is effectively matched, dollarfor dollar, by an equal linked bid for the associated clearing rights.However, the linkage formula may also be much more complicated. It alsomay contain a constant term, or it may include a minimum price or areserve price. It may also be any nonlinear function of the amount bidfor the license. Finally, while the subsequent notation will not reflectthis for expositional simplicity, the linkage formula for one licensemay depend on the bids that are placed on other licenses, and may dependon other external indices and events.

Given this framework, there is no need in the linked auction forparticipating bidders to explicitly submit distinct bids for thecomplementary goods. All that the participating bidders need to do is toagree to be contractually bound by the linkage formula, and then submitbids for the primary goods. Indeed, one way of describing a linkedauction is a method for implementing an auction of a set of firstobjects (e.g., the basic communications licenses) and one or morecomplementary second objects (e.g., the associated clearing rights), atleast one first object having a complementary second object, two or morebidders participating in the auction, the method comprising: initiatingan auction by identifying available objects to bidders; inputting bidsfor first objects from bidders; determining, based on the said bids,whether the auction should continue; repeating the inputting anddetermining until the auction is terminated; assigning the first objectsto bidders based on the bids in force at the time the auction wasterminated; and assigning a complementary second object to a successfulbidder for a first object, based on the bids for the first objects. Inmany embodiments, some or all of these steps are implemented on thecomputer system described in FIGS. 1 and 2. In particular, thetechnology previously described in U.S. Pat. Nos. 6,026,383 and5,905,975 can readily be used for implementing the initiating,inputting, determining, repeating, and assigning steps; or forimplementing the inputting, determining, and repeating steps only.

FIG. 3 is a flow diagram of a “linked auction” process in accordancewith one embodiment of the present invention. The process starts withstep 202, in which memory locations at the computer are initialized. Instep 202, the appropriate memory locations are initialized withinformation such as the licenses (or, generally, first objects) forauction and the initial minimum acceptable bids. In step 204, thecomputer outputs auction information, including the current minimumacceptable bids (P₁′, . . . , P_(m)′) for licenses. In step 206, thecomputer receives bids (P₁ ^(i), . . . , P_(m) ^(i)) for licenses frombidders. In step 208, the computer closes the bidding for the currentround and processes bids. In step 210, the computer determines whetherthe bidding should continue beyond the current round. In many of thepreferred embodiments, this determination is simply based on whether anyacceptable new bids were submitted in the current round. If, at step210, the computer determines that one or more acceptable new bids weresubmitted in the current round—and so the bidding should continue—thenthe process goes to step 212, in which the computer determines newprovisional winners and provisionally-winning prices (P₁, . . . ,P_(m)). The process then goes to step 214 in which the computer revisesthe current minimum acceptable bids (P₁′, . . . , P_(m)′) and generatesthe bidding history and any auction announcements and messages. Theprocess then loops to step 204.

If, at step 210, the computer determines no acceptable new bids weresubmitted in the current round—and so the bidding should end—then theprocess proceeds to step 216. At step 216, licenses (or, generally,first objects) are assigned to the most recent provisional winners, atthe most recent provisionally-winning prices. At step 218, clearingrights (or, generally, second objects) are assigned to the most recentprovisional winners—provided that they were participants in the clearingauction—at prices given by the linkage formula. This step is shown ingreater detail in FIG. 4. After step 218, the market mechanism processends.

In one preferred embodiment—related to the simultaneous multiple roundauction format used by the FCC—there are m licenses (or, generally,first objects) for auction. For any k (1≦k≦m), a bid P_(k) ^(i)corresponds to a price offered by bidder i for license S_(k). A new bidP_(k) ^(i) is acceptable if P_(k) ^(i)≧P_(k)′, the minimum acceptablebid for license S_(k). In this embodiment, the rule for determining thenew provisional winner of license S_(k) is: the bidder who submitted thehighest new acceptable bid for license S_(k), if any new acceptable bidfor license S_(k) was submitted; and the previous provisional winner,otherwise. In this embodiment, the new provisionally-winning price forlicense S_(k) is the bid for license S_(k) associated with the newprovisional winner. In the event that two or more new acceptable bids ofequal amount were submitted for license S_(k), a tie-breaking rule isused such as accepting the bid with the earlier time stamp. In the eventthat no acceptable bids have yet been submitted for license S_(k), theprovisional winner is listed as being the Auctioneer. One exemplary rulefor revising the minimum acceptable bid, P_(k)′, is to simply take thecurrent provisionally-winning price and multiply it by (1+c), where c isa positive constant such as 5%. However, if the provisional winner isstill listed as being the Auctioneer, then the previous minimumacceptable bid is maintained. Obviously, more complicated rules forrevising the minimum acceptable bid are also possible.

In a second preferred embodiment—related to some combinatorial auctionformats proposed for the FCC—there are h licenses (or, generally, firstobjects) for auction, but bidders are permitted to submit bids on setsof licenses. Let in denote the number of sets of licenses for which bidsmay be submitted. For any k (1≦k≦m), a bid P_(k) ^(i) then correspondsto a price offered by bidder i for the set S_(k) of licenses. A new bidP_(k) ^(i) is acceptable if P_(k) ^(i)≧P_(k)′, the minimum acceptablebid for the set S_(k). In this embodiment, the rule for determining thenew provisional winner of each set is more complicated. The computerfirst calculates the provisionally-winning combination: the collectionof bids on disjoint sets that maximizes the total auction revenues. (Inother words, the computer can only designate a bid on set S_(j) and abid on set S_(k) as both part of the provisionally-winning combinationif S_(j) and S_(k) are non-intersecting sets: otherwise, the samelicense is being provisionally assigned to two different bidders.) Inthis embodiment, if a bid on set S_(k) is calculated to be part of theprovisionally-winning combination, then the new provisional winner ofset S_(k) is the bidder who has submitted the highest acceptable bid forset S_(k). The new provisionally-winning price for set S_(k) is the bidfor set S_(k) associated with the new provisional winner. In the eventthat two or more acceptable bids of equal amount were submitted for setS_(k), a tie-breaking rule is used such as accepting the bid with theearlier time stamp or selecting randomly from among the tied bids. Inthe event that set S_(k) is not part of the provisionally-winningcombination, then the provisional winner of set S_(k) is listed as beingthe Auctioneer. One exemplary rule for revising the minimum acceptablebid, P_(k)′, is to simply take the current provisionally-winning priceand multiply it by (1+c), where c is a positive constant such as 5%.However, if the provisional winner is still listed as being theAuctioneer, then the previous minimum acceptable bid is maintained.Obviously, more complicated rules for revising the minimum acceptablebid are also possible.

FIG. 4 is a flow diagram of the process of step 218. It begins with step218-1, in which a bidder i who has not yet been considered, but who is aparticipant in the clearing auction, is selected. In step 218-2, for thebidder i currently selected, it is determined whether bidder i wasassigned any licenses (or, generally, first objects) in step 216. If itis determined that bidder i was not assigned any licenses in step 216,then the process proceeds directly to step 218-8 where another bidder isselected. If it is determined that bidder i was assigned one or morelicenses in step 216, then the process continues with step 218-3, inwhich a license or set of licenses, S_(k), that has not yet beenconsidered and that was assigned to bidder i in step 216 is selected.The process then continues with step 218-4, in which the price P_(k) atwhich the set S_(k) was assigned is recalled. In step 218-5, the linkageformula F(•,•) is applied to (P_(k), S_(k)), thereby determining theprice F(P_(k), S_(k)) that will be charged for the clearing rights (or,generally, second objects) associated with the set S_(k). In step 218-6,the clearing rights (or, generally, second objects) associated with theset S_(k) are assigned to bidder i at price F(P_(k), S_(k)). In step218-7, it is determined whether all licenses or sets of licenses thatwere assigned to bidder i in step 216 have been considered. If not, theprocess loops back to step 218-2. If all licenses or sets of licensesthat were assigned to bidder i in step 216 have been considered, theprocess goes to step 218-8, where it is determined whether all bidderswho were participants in the clearing auction have been considered. Ifnot, the process loops back to step 218-1. If all bidders who wereparticipants in the clearing auction have been considered, the processreturns to FIG. 3; and since it is at the last step of FIG. 3, it ends.

The embodiments of the “linked auction” that we have described thus farhave assumed that the linkage formula is determined in advance. The nextembodiments that we will now describe include, as part of the process, adetermination of the linkage formula.

The determination of the right linkage formula is a delicate balancingact, but fortunately, when participation in the mechanism is voluntary,the parties possess the right incentives to select an appropriatenumber. At first glance, it might appear that the bidders would haveevery incentive to try to set the linkage as low as possible, while theowners of the clearing rights would have every incentive to set thelinkage as high as possible. But the parties also possess strongcountervailing incentives. The incentives are not as simple as they maysuperficially appear, facilitating reasonable agreement.

The fact of voluntary participation by bidders effectively disciplinesthe incumbent broadcasters from trying to set the linkage too high. Thelinkage formula drives a wedge between the price effectively paid forthe licenses by a participating bidder versus a nonparticipating bidder.If the wedge is set excessively large, any bidder will find itpreferable to decline participating in the clearing auction: with toolarge a wedge, purchase of the license without the associated clearingrights is a better deal. Thus, an excessively high linkage discouragesbidders from participating in the clearing auction and increases thelikelihood that nonparticipants win the licenses, undercutting theobjectives of the owners of the clearing rights.

The fact of voluntary participation by owners of the clearing rightseffectively disciplines the bidders from trying to set the linkage toolow. For suppose that the bidders insist on making the linkage toosmall. Then many of the owners will refuse to tender their clearingrights, and many of these will not be offered in the clearing auction,undercutting the bidders' objectives. Meanwhile, each bidder should nothave a problem with agreeing in advance to a linkage that adequatelycompensates the owners of the clearing rights. With a predetermined costto clearing, the bidder can simply subtract the cost of clearing fromits value for clear spectrum, and bid for the licenses accordingly. Witheach bidder subject to the same linkage formula, there is a levelplaying field on clearing terms, and the bidder is neither advantagednor disadvantaged.

In the embodiment of the invention illustrated in FIG. 5, the linkageratio is determined by an auction among the bidders for licenses. In theembodiment of the invention illustrated in FIG. 6, the linkage formulais specified by the auctioneer, by the government, or by the owners ofthe clearing rights, and each bidder is given an opportunity to agree tothese terms or to decline them.

FIG. 5 is a flow diagram of another embodiment of the invention thatincludes the process of FIG. 3. The process starts with step 102, inwhich memory locations at the computer are initialized. In step 102, theappropriate memory locations are initialized with information such asthe initial minimum acceptable linkage ratio R′. In step 104, thecomputer outputs auction information, including the current minimumacceptable linkage ratio R′. In step 106, the computer receives bidsR^(i) from bidders. In step 108, the computer closes the bidding for thecurrent round and processes bids. In step 110, the computer determineswhether the auction of linkage ratios should continue beyond the currentround. In some embodiments, this determination step is unnecessary, asthe auction of linkage ratios is simply conducted in a single round ofsealed bids; the auction of linkage ratios never continues beyond step110. In other embodiments, this determination is simply based on whetherany acceptable new bids of linkage ratios were submitted in the currentround. If, at step 110, the computer determines that the bidding shouldcontinue, then the process goes to step 112, in which the computerdetermines a new provisionally-winning, linkage ratio, R, and newprovisional participants in the clearing auction. In many embodiments,these would be determined by the same procedures as in steps 116 and118, below. The process then goes to step 114 in which the computerrevises the current minimum acceptable linkage ratio R′ and generatesthe bidding history and any auction announcements and messages. Theprocess then loops to step 104.

If, at step 110, the computer determines that the auction of linkageratios should not continue, then the process proceeds to step 116. Atstep 116, based on the bids, a winning linkage ratio, R, is determined.In some embodiments, the winning linkage ratio is simply determined tobe the highest linkage ratio that is bid by any bidder. In otherembodiments, the winning linkage ratio is determined so that two or morebidders' bids are greater than or equal to the winning linkage ratio.The determination may depend, in part, on how close together thebidders' bids are located, and the perceived probability that therespective bidders will win in the auction of licenses that followsbeginning at step 204. At step 118, each bidder i whose most recent bid,R^(i), satisfied R^(i)≧R is designated to be a participant in theclearing auction. The process then proceeds to step 204 of FIG. 3, whichbegins the auction of licenses together with the clearing auction. Inwhat follows in FIG. 3, the linkage formula shall simply be given byF(P_(k), S_(k))=RP_(k), where R is the winning linkage ratio determinedin step 116.

FIG. 6 is a flow diagram of another embodiment of the invention thatincludes the process of FIG. 3. The process starts with step 152, inwhich memory locations at the computer are initialized. In step 154, alinkage formula, F(•,•), for the clearing auction is specified. In atypical embodiment of this type, the linkage formula will be specifiedby the auctioneer, by the government, or by the owners of the clearingrights. In step 156, a bidder i who has not yet been considered isselected. In step 158, bidder i indicates whether he agrees to becontractually bound by the linkage formula, F(•,•), specified for theclearing auction. If bidder i is not willing to be contractually boundby the said linkage formula, then the process proceeds directly to step162 where another bidder is selected. If bidder i indicates that he iswilling to be contractually bound by the said linkage formula, then theprocess goes to step 160 where bidder i is designated a participant inthe clearing auction with linkage formula F(•,•). The process then goesto step 162, where it is determined whether all bidders have beenconsidered. If not, the process loops back to step 156. If all biddershave been considered, the process proceeds to step 204 of FIG. 3, whichbegins the auction of licenses together with the clearing auction. Theclearing auction occurs using the linkage formula F(•,•) that wasspecified in step 154, and with all bidders who were designated in thevarious repetitions of step 160 as participants.

Embodiments of an “Unlinked Auction” Process

Several of the preferred embodiments of the inventive system and methodtake the form of an “unlinked auction.” The clearing rights are put upfor auction, in either the same auction or a separate auction as thecommunications licenses. Bids for the clearing rights are not rigidlylinked to bids for the communications licenses, but bids for theclearing rights are nevertheless constrained to satisfy somemathematical relationship relative to bids for the communicationslicenses.

One exemplary constraint for the unlinked auction is a requirement thateach bid for a clearing right must be greater than or equal to thenumber yielded by a simple linkage ratio, R. This means that if thestanding high bid for a license equals b, then the bid for theassociated clearing rights is required to be at least Rb. However, theconstraint may also be much more complicated. It also may contain aconstant term, or it may include a minimum price or a reserve price. Itmay also be any nonlinear function of the amount bid for the license.Finally, while the subsequent notation will not reflect this forexpositional simplicity, the constraint for bids on one clearing rightmay depend on the bids that are placed on other licenses, and may dependon other external indices and events. In addition to applying thisconstraint, the standard rules for an auction are applied. For example,a bid for a given clearing right may be required to be at least theprevious high bid plus a minimum bid increment.

In contrast to the linked auction, bidders in the unlinked auction doneed to explicitly submit distinct bids for the clearing rights. One wayof describing an unlinked auction is a method of implementing an auctionof a set of second objects (e.g., clearing rights) constrained by arelated auction of first objects (e.g., communication licenses), atleast one first object having a complementary second object, two or morebidders participating in the auction, the method comprising: initiatingan auction by identifying available second objects to bidders; inputtingbids for second objects from bidders, where an acceptable bid for asecond object is constrained by a bid for a complementary first objectin the related auction; determining, based on the said bids, whether theauction should continue; repeating the inputting and determining untilthe auction is terminated; and assigning the second objects to biddersbased on the bids in force at the time the auction was terminated. Inmany embodiments, some or all of these steps are implemented on thecomputer system described in FIGS. 1 and 2. In particular, thetechnology previously described in U.S. Pat. Nos. 6,026,383 and5,905,975 can readily be used for implementing the initiating,inputting, determining, repeating, and assigning steps; or forimplementing the inputting, determining, and repeating steps only.

FIG. 7 is a flow diagram of an “unlinked auction” process in accordancewith one embodiment of the present invention. The process starts withstep 302, in which memory locations at the computer are initialized. Instep 302, the appropriate memory locations are initialized withinformation such as the clearing rights (or, generally, second objects)for auction and the initial minimum acceptable bids. In step 304, thecomputer outputs auction information, including the current minimumacceptable bids (P₁′, . . . , P_(m)′) for clearing rights. In step 306,the computer receives bids (P₁ ^(i), . . . , P_(m) ^(i)) for clearingrights from bidders. In step 308, the computer closes the bidding forthe current round and processes bids. In step 310, the computer adjuststhe bids based on the bidding history of the related auction forcomplementary licenses, and using the constraint on bids that definesthe unlinked auction. This step is shown in greater detail in FIG. 8. Instep 312, the computer determines whether the bidding should continuebeyond the current round. In many of the preferred embodiments, thisdetermination is simply based on whether the related auction ofcomplementary licenses has terminated. If, at step 312, the computerdetermines that the related auction of complementary licenses has notterminated—and so the bidding for clearing rights should continue—thenthe process goes to step 314, in which the computer determines newprovisional winners and provisionally-winning prices (P₁, . . . ,P_(m)). The process then goes to step 316 in which the computer revisesthe current minimum acceptable bids (P₁′, . . . , P_(m)′) and generatesthe bidding history and any auction announcements and messages. Theprocess then loops to step 304.

If, at step 312, the computer determines that the related auction ofcomplementary licenses has terminated—and so the bidding for clearingrights should also end—then the process proceeds to step 318. At step318, clearing rights (or, generally, second objects) are assigned to themost recent provisional winners, at the most recentprovisionally-winning prices. After step 318, the market mechanismprocess ends.

Two preferred embodiments of the unlinked auction—one related to thesimultaneous multiple round auction format used by the FCC and onerelated to some combinatorial auction formats proposed for theFCC—follow the same description as in the section, above, on the linkedauction (in the two paragraphs immediately following the detaileddescription of FIG. 3).

FIG. 8 is a flow diagram of the process of step 310. It begins with step310-1, in which the bidding history of the related auction forcomplementary licenses is inputted or accessed. In step 310-2, a setS_(k) that has not yet been considered, but which is part of aprovisionally-winning bid in the related auction, is selected. In step310-3, for the set S_(k) currently selected, it is determined whetherthe provisional winner of set S_(k) in the related auction is also aparticipant in the unlinked auction. If the provisional winner of setS_(k) is not a participant in the unlinked auction, then the processskips to step 310-6 where another set S_(k) is selected. If theprovisional winner of set S_(k) is a participant in the unlinkedauction, then the process continues with step 310-4. In step 310-4, forthe set S_(k) currently selected, it is determined whether theprovisional winner of set S_(k) in the related auction has placed a bidin the unlinked auction that satisfies the constraints of the unlinkedauction. If the provisional winner of set S_(k) in the related auctionhas placed a bid in the unlinked auction satisfying the constraints ofthe unlinked auction, then the process skips to step 310-6 where anotherset S_(k) is selected. If the provisional winner of set S_(k) in therelated auction has not placed a bid in the unlinked auction satisfyingthe constraints of the unlinked auction, then the process proceeds tostep 310-5. In step 310-5, the computer adjusts the bids in the unlinkedauction, by inserting a bid for set S_(k) in the smallest amount P_(k)satisfying the constraints of the unlinked auction. The inserted bid ofP_(k) is placed on behalf of the provisional winner of set S_(k) in therelated auction. In step 310-6, it is determined whether all sets S_(k)that are part of provisionally-winning bids in the related auction havebeen considered. If not, the process loops back to step 310-2. If allsets S_(k) that are part of provisionally-winning bids in the relatedauction have been considered, then the process returns to step 312 inFIG. 7.

One exemplary constraint of the unlinked auction is a simplegreater-than-or-equal-to inequality: for each bid in the related auctionof communications licenses, there is required to be a corresponding bidat least as large in the unlinked auction for clearing rights. At step310-4, for the set S_(k) currently selected, it is determined whetherthe provisional winner of set S_(k) in the related auction has placed acorresponding bid at least as large in the unlinked auction. If not,then at step 310-5, the computer would insert a bid in the unlinkedauction for set S_(k) in an amount equal to the provisionally-winningbid for set S_(k) in the related auction. The inserted bid is placed onbehalf of the provisional winner of set S_(k) in the related auction.

Aggregation and Partition into “Clearing Rights”

In several of the preferred embodiments of the inventive system andmethod, contracts with incumbent broadcasters to clear the spectrum aretransformed into “clearing rights” that are more nearly coextensive withthe associated communications licenses. The clearing rights areconstructed so as to align, in location on the electromagnetic spectrumand in geographic location, with the scope of a communications licenseor set of licenses. This facilitates the operating of the system andmethod already described and thereby facilitates the efficient clearingof encumbered spectrum.

In typical applications of the inventive system, the geographic regioncovered by a new communications license and the geographic regioncovered by an incumbent broadcaster are disparately different. Forexample, in the 700 MHz band of spectrum, each new license coversapproximately one-sixth of the United States, whereas some 100television stations nationally operate in this band. Therefore, to makethe boundaries of a new license and the associated clearing rights lineup, it is necessary to aggregate together the clearing agreements for alarge number of television stations. At the same time, some televisionstations yield interference issues with more than one license region.For example, in the 700 MHz band of spectrum, Philadelphia is locatedvery near the boundary between the Mid-Atlantic license and theNortheast license. If a television station with a strong signal islocated in Philadelphia, the station yields interference issues withboth the Mid-Atlantic and Northeast licenses. Therefore, to make theboundaries of a new license and the associated clearing rights line up,it is also sometimes necessary to partition a clearing agreement with asingle television station into two pieces.

Several of the preferred embodiments of the inventive system and methodinclude the aggregating and partitioning of contracts to clear into“clearing rights.” This aggregating and partitioning is best implementedon a computer using mapping software such as MapInfo and using databasesthat include the broadcast contours of television stations, theboundaries of the communications licenses, and the locations of thepopulation.

FIG. 9 is a flow diagram of an embodiment of the invention in whichcontracts to clear various incumbent broadcasters are aggregated and/orpartitioned to form clearing rights. The process starts with step 402,in which memory locations at the computer are initialized. In step 404,an incumbent broadcaster j who has not yet been considered, but who hassigned a contract to clear, is selected, and the database is accessedfor the broadcast contour of incumbent broadcaster j. The processcontinues with step 406, in which a license or set of licenses, S_(k),that has not yet been considered is selected, and the database isaccessed for the region covered by S_(k). In step 408, it is determinedwhether the broadcast contour of j intersects with the region covered byS_(k). If they do not intersect, the process skips to step 414. If theydo intersect, then the process goes to step 410. There, the populationin the intersecting region is calculated using the database and thecomputed population is added to a population sum for S_(k), and theseresults are stored in the computer's memory. It then goes to step 412,where the contract for incumbent broadcaster j to clear the intersectingregion is attributed to the clearing rights for S_(k). The processcontinues with step 414, where it is determined whether all licenses orsets of licenses have been considered. If not, the process loops back tostep 406. If all licenses or sets of licenses have been considered, theprocess goes to step 416, where it is determined whether all incumbentbroadcasters who have signed contracts to clear have been considered. Ifnot, the process loops back to step 404. If all incumbent broadcasterswho have signed contracts to clear have been considered, then theprocess goes to step 418, where the clearing rights are assigned towinners of licenses and the revenues from the clearing rights areallocated among incumbent broadcasters. This step is shown in moredetail in FIG. 10. After step 418, the process ends.

FIG. 10 is a flow diagram of the process of step 418. It begins withstep 418-1, in which a license or set of licenses, S_(k), that has notyet been considered is selected. In step 418-2, it is determined whetherthe license or set of licenses S_(k) was assigned to a bidder, and ifso, which bidder. If it was not assigned to a bidder, the process skipsto step 418-7. If it was assigned to a bidder, then the process goes tostep 418-3, where the clearing rights for S_(k) are assigned to the samebidder. In step 418-4, an incumbent broadcaster j who has not yet beenconsidered, but who has signed a contract to clear, is selected. In step418-5, the earlier results for S_(k) and incumbent broadcaster j arerecalled from the computer's memory. The population of the intersectionof region S_(k) and the contour of incumbent broadcaster j is divided bythe population sum for S_(k); this gives the share of S_(k) forincumbent broadcaster j. This share is then multiplied by P_(k), theprice obtained for S_(k), and the result is credited to incumbentbroadcaster j. The process continues with step 418-6, where it isdetermined whether all incumbent broadcasters who have signed contractsto clear have been considered. If not, the process loops back to step418-4. If all incumbent broadcasters who have signed contracts to clearhave been considered, the process goes to step 418-7, where it isdetermined whether all licenses or sets of licenses have beenconsidered. If not, the process loops back to step 418-1. If alllicenses or sets of licenses have been considered, then the processends.

The various embodiments described above should be considered as merelyillustrative of the present invention. They are not intended to beexhaustive or to limit the invention to the forms disclosed. Thoseskilled in the art will readily appreciate that still other variationsand modifications may be practiced without departing from the generalspirit of the invention set forth herein. Therefore, it is intended thatthe present invention be defined by the claims that follow.

What is claimed is:
 1. A method implemented in a system comprising anauctioneer computer and a communications interface, said system arrangedto receive information from a plurality of bidder computers, said methodfor conducting a first auction of a first set of items and a secondauction of a second set of items, said second set of items formed by anaggregation and/or partition of said first set of items, at least twobidders participating in each auction, the method comprising: a)initiating the first auction by identifying the first set of items, b)receiving bids at the auctioneer computer for items in the first set ofitems from the communications interface, c) determining, using theauctioneer computer, whether the first auction should terminate, d)repeating b) and c) until the first auction is terminated, e) initiatingthe second auction by identifying the second set of items, wherein saidsecond set of items is composed of portions of selected items from saidfirst set which are aggregated with portions of other items from saidfirst set, and f) receiving bids at the auctioneer computer for items inthe second set of items from the communications interface.
 2. The methodas recited in claim 1 wherein the second auction is initiated prior tothe termination of the first auction.
 3. The method of claim 1 whereinstep c) terminates the first auction in the event that no new bids weresubmitted and wherein step c) also provides new bidding information tobidders in the event that the first auction is not terminated.
 4. Themethod of claim 1 which further includes constraining the received bidsfor items in the second auction by accepting only bids which satisfy aconstraint based on bids in the first auction.
 5. The method of claim 2which further includes constraining the received bids for items in thefirst auction by accepting only bids which satisfy a constraint based onbids in the second auction.
 6. The method of claim 1 wherein items ofsaid first and second set comprise spectrum rights.
 7. The method ofclaim 4 wherein items of said first and second set comprise spectrumrights.
 8. The method of claim 5 wherein items of said first and secondset comprise spectrum rights.
 9. A system including an auctioneercomputer coupled to a communications interface for conducting a firstauction of a first set of items and a second auction of a second set ofitems, said second set of items formed by an aggregation and/orpartition of said first set of items, said system allowing at least twobidders to participate in each auction, the system comprising: a) meansfor initiating the first auction by identifying the first set of items,b) means for receiving bids at the auctioneer computer for items in thefirst set of items from the communications interface, c) means fordetermining, using the auctioneer computer, whether the first auctionshould terminate, d) means for repeating said receiving of said meansfor receiving and said determining of said means for determining untilthe first auction is terminated, e) means for initiating the secondauction by identifying the second set of items, wherein said second setof items is composed of portions of selected items from said first setwhich are aggregated with portions of other items from said first set,and f) means for receiving bids at the auctioneer computer for items inthe second set of items from the communications interface.
 10. Thesystem of claim 9 wherein the means for initiating the second auctioninitiates the second auction prior to termination of the first auction.11. The system of claim 9 wherein the means for determining terminatesthe first auction in the event that no new bids were submitted andprovides new bidding information to bidders in the event that the firstauction is not terminated.
 12. The system of claim 9 which furtherincludes constraining means for constraining the received bids for itemsin the second auction by accepting only bids which satisfy a constraintbased on bids in the first auction.
 13. The system of claim 10 whichfurther includes constraining means for constraining the received bidsfor items in the first auction by accepting only bids which satisfy aconstraint based on bids in the second auction.
 14. The system of claim9 wherein the first and second set of items comprise spectrum rights.15. The system of claim 12 wherein the first and second set of itemscomprise spectrum rights.
 16. The system of claim 13 wherein the firstand second set of items comprise spectrum rights.